Analysis and Interpretation of Company’s Financial Statements

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M14EFA-Management Accounting for Business (Group Coursework)

Analysis and Interpretation of company’s Financial Statements.

Example Coursework 2

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Contents

1.0)        Introduction        4

2.0)        Background information        5

1. Debenhams plc        5
2. John Lewis Partnership        5

3.0) Horizontal and vertical analysis        6-16

1. Debenhams plc

Table 1, Consolidated Income Statement        6

1. Interpretation on Table 1        7

Table 2, Consolidated Balance Sheet        7-10

1. Interpretation on Table 2        10

1. John Lewis Partnership

Table 4, Consolidated Income Statement        11-12

1. Interpretation on Table 4        12-13

Table 5, Consolidated Balance Sheet        13-15

1. Interpretation on Table 5        16

4.0) Ratio Analysis

Table 7, Ratio analysis on Debenhams plc and John Lewis Partnership        19-23

1. Interpretation on ratio analysis        18
2. Interpretation on ROCEs        18

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1. Interpretation on Gross Margin        19
2. Interpretation   on   Net   Margin   &   Operating   Profit Margin        20
3. Interpretation on Assets Turn over        20
4. Interpretation on Stock Holding Period        21
5. Interpretation on Debtor’s Collection Period        21
6. Interpretation on Creditors’ Payment Period        21
7. Interpretation on Current Ratio        22
8. Interpretation on Acid Test        22
9. Interpretation on Gearing        23
10. Interpretation on Interest Cover        23
11. Interpretation on Dividend Cover        23

5.0) Discussion on limitation        24

6.0) Recommendations and Conclusion        25

7.0) Appendix        26-30

8.0) List of reference        31

1.0) Introduction

The point of this analysis in this essay is to practice how to understand business entities through accurate numerical portraits of the businesses so

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that help people, whether investors or not, to make reliable and informed decision regarding business.

This essay will focus on critically appraise the current financial statements of Debenhams plc and John Lewis Partnership and evaluate its financial position based on the statements. In doing so, the essay strive to begin analyse the two companies with the techniques learned throughout the module, including horizontal analysis, vertical analysis, and analysis by ratios. Following these analysis, the essay will endeavour to interpret the numerical data on the footing of background information. This includes the business they conduct, their sources of revenue, and other reliable information outside of their reports, for example, HM Tax Revenue & Customs;

The structure of numerical analysis will be divided based on company, so that a reader could have a consistent view of observation in straight order, rather than a number of chopped snapshots. However, careful and tightly connected comparisons will be provided in the conclusion.[pic 6]

Finally, the essay will endeavour to provide recommendations, and discuss as to the companies’ financial aspects comparatively and from the view point of the classes of people who may be interested in gaining through understanding of financial statements in question.

1. Background Information

1. Debenhams plc

Debenhams plc is characterising itself as international, multi-channel retail brand which possess half of its products exclusive to Debenhams. The supply chain is mainly sourcing from China/Hong Kong and significantly sourced from other countries, for example, India and Bangladesh. The department store mainly achieve its revenues by retailing various kinds of products, with heavier focus on men/women wears, accessories and health & beauties products, of which qualities varies from moderate to luxurious. Its brand ownership and market-targeting seem to make its role rather unique if not irreplaceable. One of its competitors is John Lewis Partnership.[pic 7]

Comment [RP1]: Some good background here, but no mention of sources of finance.

1. John Lewis Partnership

John Lewis Partnership is the parent company of John Lewis plc and has of 246 Waitrose supermarkets and 21 Waitrose convenience stores; in particular, John Lewis Partnership has 29 department stores which are in direct competition with Debenhams plc. Thus they have the similar retail income sources. While sharing an overlapped market, John Lewis is also characterised by international business and employee-ownership by up to 81,000 employees. Most importantly, while admitting a decline in profit, John Lewis is aggressively expanding its market share by realising investments on a number of proposals, including 29 Waitrose new shops, Lewis – Click & collect, overhauling shop management and by far the largest investment on supply chain.[pic 8][pic 9]